Tight Oil Reality Check
Much of the cost-benefit debate over fracking has come down to the perception of just how much domestic oil and gas it can produce and at what cost. To answer this question, policymakers, the media, and the general public have typically turned to the U.S. Department of Energy’s Energy Information Administration (EIA), which every year publishes its Annual Energy Outlook (AEO).
- The EIA’s 2015 Annual Energy Outlook is even more optimistic about tight oil than the AEO2014, which we showed in Drilling Deeper suffered from a great deal of questionable optimism. The AEO2015 reference case projection of total tight oil production through 2040 has increased by 6.5 billion barrels, or 15%, compared to AEO2014.
- The EIA assumes West Texas Intermediate (WTI) oil prices will remain low and not exceed $100/barrel until 2031.
- At the same time, the EIA assumes that overall U.S. oil production will experience a very gradual decline following a peak in 2020.
- These assumptions—low prices, continued growth through this decade, and a gradual decline in production thereafter—are belied by the geological and economic realities of shale plays. The recent drop in oil prices has already hit tight oil production growth hard. The steep decline rates of wells and the fact that the best wells are typically drilled off first means that it will become increasingly difficult for these production forecasts to be met, especially at relatively low prices.
- Perhaps the most striking change from AEO2014 to AEO2015 is the EIA’s optimism about the Bakken, the projected recovery of which was raised by a whopping 85%.
- As it has acknowledged, the EIA’s track record in estimating resources and projecting future production and prices has historically been poor. Admittedly, forecasting such things is very challenging, especially as it relates to shifting economic and technological realities. But the below ground fundamentals— the geology of these plays and how well they are understood—don’t change wildly from year to year. And yet the AEO2015 and AEO2014 reference cases have major differences between them. As Figure 13 shows, with the exception of the Eagle Ford, the EIA’s projections for the major tight oil plays have shifted up or down significantly.
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